* Dollar recovers from 14-month low against the euro
* Stock markets fall, boosting dollar demand
* Physical offtake remains weak
(Recasts, adds comment, updates prices)
By Jan Harvey and Maytaal Angel
LONDON, Oct 26 (Reuters) - Gold prices fell to their lowest
in 10 days in Europe on Monday, taking a cue from currencies as
the dollar bounced off 14-month lows against the euro, with weak
physical demand for the precious metal also weighing.
Spot gold was bid at $1,046.05 an ounce at 1619 GMT, against
$1,053.95 late in New York on Friday, having hit a low of
$1,044.80 -- last seen on October 16.
U.S. gold futures for December delivery <GCZ9> on the COMEX
division of the New York Mercantile Exchange fell $10.20 to
$1,046.20 an ounce.
"The relationship between gold and the dollar on a daily
basis is still very strong," said Daniel Major, analyst at RBS
Global Banking and Markets.
"Since gold broke above $1,000 it has outperformed the
euro/dollar slightly, i.e. it moved up faster than the dollar
devalued, but for the last week or so it seems to be
consolidating," he added.
The dollar bounced off 14-month lows against the euro on
Monday, trading up on the day after riskier assets such as U.S.
stocks fell. []
Strength in the U.S. currency makes gold less attractive for
holders of other currencies, as well as denting interest in gold
as an alternative asset.
While falls in stock markets usually boost gold's safe haven
appeal, they have recently sent investors running for the
perceived safe haven of the dollar over that of gold.
"The gold price rally of the past weeks was largely the
result of a softer U.S. dollar. Without further USD weakening,
gold would lose one major price supporting factor, especially as
- on the back of the high price level," Commerzbank said in a
note to clients.
"The physical demand in India has already weakened
significantly. Most recently, gold ETFs have not seen any
meaningful inflows of late. We continue to see the downside risk
of a price correction in gold."
WEAK DEMAND
Demand from jewellers and investors alike remained
relatively soft, weighing on gold.
"Investors and dollar doom-sayers may say gold could rise
higher, but physical markets are not at all in sync with that
view," said Richcomm Global Services senior analyst Pradeep
Unni.
Wholesale gold traders in India, the world's biggest bullion
consumer last year, said they were picking up some bargains as
prices retreated from record highs, but demand was soft overall.
Investment buying was also less than buoyant. The largest
gold-backed exchange-traded fund, New York's SPDR Gold Trust
<GLD>, reported no fresh inflows on Friday. []
Speculative positions in U.S. gold futures eased from peaks,
with noncommercial net long positions falling 1.5 percent in the
week to Oct. 20 from a record 253,955 lots the week before, the
weekly Commitments of Traders report showed. []
Among other precious metals, spot silver <XAG=> was bid at
$17.42 an ounce against $17.65.
In a note, Bank of America Merrill Lynch said silver prices
had benefited from strong investment demand, and that a recovery
in economic activity was likely to be reflected in industrial
silver buying.
"After the recent sharp price rises, we are cautious on
silver in the near-term, but we believe that a spike towards $20
an ounce is possible in 2010," it said.
ETF Securities said holdings of its silver-backed
exchange-traded commodity <PHAG.L> rose 1 percent or just over
200,000 ounces to a record 21.054 million ounces on Friday.
It added that its palladium-backed ETC <PHPD.L> also saw
inflows of nearly 9,000 ounces 1.6 percent that day, bringing
its total holdings to a record 558,337 ounces.
Spot platinum <XPT=> was at $1,348 an ounce against $1,358,
while palladium <XPD=> was at $332.00 against $333.
(Editing by Veronica Brown)
